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Knight Trading Loss Exceeds Balance-Sheet Cash: Chart of the Day

Comparing Knight Capital Group Inc.’s loss from trading errors to its cash on hand shows the severity of the company’s financing issues, according to Robert Rutschow, a Credit Agricole Securities (USA) Inc. analyst.

The CHART OF THE DAY illustrates how the $440 million pretax loss stacks up against end-of-quarter cash balances for the past five years, according to data compiled by Bloomberg. Knight ended last quarter with $364.8 million, or 17 percent less than the loss from trades tied to flawed software.

Knight has relatively little bank financing to bridge the gap, according to a report by Rutschow yesterday. The New York-based analyst estimated that the firm has $70 million left to borrow under a revolving-credit agreement. The trading loss exceeds the latest cash balance by $75.2 million.

“We are worried about Knight’s viability,” he wrote. “The risk is that loan covenants will be broken.”

Knight’s bank agreements allow the company to borrow no more than $2.25 for every dollar of earnings before interest, taxes, depreciation and amortization in the past four quarters, according to regulatory filings. The condition applies to the credit line, totaling $200 million and running through next June, and a $100 million loan due in June 2014.

Rutschow lowered his rating on Knight, based in Jersey City, New Jersey, to sell from outperform after the loss. He’s the only one of 10 analysts covering the company to recommend selling, according to a Bloomberg survey. His share-price estimate of $3 is the lowest among seven analysts.

Knight shares plunged 75 percent in two days, closing yesterday at $2.58.

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